JUDGES AS ARBITRATORS

Transcription

1 Dr Howard Zelling A0 CBE* JUDGES AS ARBITRATORS INTRODUCTION should begin this article with a disclaimer. I have never appeared before a judge acting as an arbitrator, nor have I seen a judge acting in that capacity. The nearest experience I have is of watching judges using the Conciliation Act 1929 (SA), usually in custody or property settlement agreements, in the days when the South Australian Supreme Court had jurisdiction in divorce. So it is a misnomer for me to speak in the title of the article of "Judges" in the plural. What follows is necessarily derived from my own experience as an arbitrator over many years, and is based on the supposition that the training one gets by acting as a judge will probably produce similar reactions from other judges who are called on to sit as arbitrators. My experience is largely confined to arbitration arising out of disputes in commercial matters, and this paper does not purport to deal with industrial arbitration. What I have sought to do is to discuss the sort of problems faced by judges or former judges who sit as arbitrators, and by those who appear for the parties to the arbitration. I have assumed that the judge in question has, or has acquired, skills as a mediator and conciliator, and I do not deal here with the training requisite to acquire or enhance those skills. When writing this article I was aware that a bill was before Parliament to amend the Commercial Arbitration Act 1986 (SA).' At the stage of writing, the Attorney-General had given his second reading speech on the bill,2 but no further discussion of the bill had taken place. In those circumstances it did not seem profitable to speculate on what form the bill might assume when it was finally presented to the Governor for her assent, and I have accordingly written this paper on the law as it existed under the * Judge, Supreme Court of South Australia, ; Acting-Judge, Supreme Court of South Australia, This article was originally presented as a paper at the Third Symposium on Commercial Arbitration, Law School, University of Adelaide, 17 October Commercial Arbitration (Unvorm Provisions) Amendment Bill 1992 (SA). 2 SA, Parl, Debates S (47th Session of Parliament, No ) at , per the Honourable CJ Sumner.

2 26 ZELLING - JUDGES AS ARBITRATORS principal Act of 1986, without regard to the suggested amendments in the 1992 amending bill. I should add that this article does not deal separately with arbitrations arising out of provisions for arbitrations contained in a statute. Such arbitrations usually follow the patterns of a consensual arbitration, except for questions of statutory interpretation arising out of the provisions of the particular statute which gives rise to the arbitration. Nor have I tried to deal with unusual forms of the arbitration process, such as the American "best offer" arbitration. That leaves two kinds of arbitration: one arising out of an agreement to submit disputes to arbitration; and the other arising from an order of Court sending a matter to arbitration which has begun as an action in that Court, and it is with these two forms that I have tried to deal in the paper. Arbitration as a form of dispute resolution has a long history in English law and it is only in recent years that a conscious attempt has been made to escape from the trammels of history. In the Middle Ages, much arbitration was conducted by the King personally or by great lords. Edward IV acted as an arbitrator frequently of his own motion, binding the parties in sums such as 50,000 marks (about $2,000,000 of our money) to observe the terms of his award. If James VI and I had known more of English law, he could have avoided the celebrated contretemps with Coke CJ about the King lacking the "artificial reason and judgment of law", and the law being "the golden metewand and measure to try causes of his subjects", by telling the enraged Chief Justice that he proposed to sit as an arbitrator as his predecessors had done! I have assumed Coke's account in saying this,3 although I am aware that there are other versions of the matter which were much less favourable to Coke, and which make no mention of the stately prose of the reporter and participant. There was no statute governing commercial arbitration until and that statute was inherited by us on 28 December It was repealed in England by the Arbitration Act 1889 (UK),S which, with minor alterations, provided by us with our Arbitration Act 1891 (SA). The value of these Acts, apart from setting out a statutory procedure to govern arbitrations, was that they prevented any objection to the arbitration agreement based 3 As narrated in 12 Co Rep Will I11 c and 53 Vict c49.

3 on the point that it was contrary to public policy to prevent or restrict access by the subject to the King's courts. That point must however still be watched, in cases not covered by ss40 and 41 of the present Act, when drawing an agreement containing an arbitration ~lause.~ In recent years the question of what should be contained in an Arbitration Act to meet present day needs has been considered by most law reform committees in Australia,7 and as a result new and up to date statutes have been enacted in nearly all Australian States and Territories.8 However, even the most recent statutes are, in my opinion, drawn in a manner which adheres too closely to the common law background, and further amendment and modification of the statutes is essential because we are becoming more and more a part of Asia, and can no longer loftily go ahead as though the common law was the perfection of human reason (whether in the Gilbertian sense or any other). In the Orient the general view is that to resort to litigation in commercial disputes is barbarous. It is assumed that the parties to the dispute will go on doing business for years or generations to come, and our system of setting parties in an adversarial situation in court is only going to wreck future commercial intercourse. Their idea of a contract is an agreement to work by, not a straitjacket with in terrorem clauses for late performance, and damages said to be liquidated, but often bearing little relation to what has actually been sustained. All that is needed in their view is for a third party to be on hand from the very beginning of the contract, or at least from the commencement of performance, to smooth over any difficulties that may be encountered with no loss of face to anyone. If we are going to live and do business against an Asian background we have to adopt that philosophy, or risk not getting future business, and our statutory and contractual approach to arbitration will have to change accordingly. 6 See the judgment of the Court of Appeal in Czarnikow v Roth Schmidt & Co [I KB Law Reform Committee of South Australia, Arbitration Act, (Report No 5, 1969); Law Reform Commission of New South Wales, Report on Commercial Arbitration (LRC 27, 1976); Law Reform Commission of Tasmania, Commercial Arbitration Act 1986 (Tas) (Report No 56, 1988). 8 Arbitration Act 1973 (Qld); Commercial Arbitration Act 1984 (NSW); Commercial Arbitration Act 1984 (Vic); Commercial Arbitration Act 1986 (Tas); Commercial Arbitration Act 1986 (SA).

4 28 ZELLING - JUDGES AS ARBITRATORS This applies equally to our arbitrators and judges who are steeped in the common law. They will have to discard that mode of thinking, and learn to use mediation and conciliation as their primary tools. Judges will not be appointed as arbitrators because of their knowledge of the law, they will only use that in the last resort. Equally a judge or former judge, who is appointed as arbitrator must remember that they are no longer endowed with their contempt powers. Their only weapons, and those only to be used as a last resort, are those contained in ss37 and 46 of the Commercial Arbitration Act 1986 (SA). Above all judges must discard the notion of treating the parties as two litigants in an adversarial situation, and try to find sufficient common ground on which to build a solution by mediation and conciliation. In my view our Acts still have some way to go in recognising that position as the norm and a redraft, based on that approach, is needed in the very future. Meanwhile much can be done, in consensual arbitrations in particular, by getting those concepts built into the arbitration process, if they are not there already, at the preliminary meeting of the arbitrator with the parties and their representatives. COURT ORDER ARBITRATION I turn now from these general observations to deal shortly with arbitrations pursuant to orders of Court made under s66 of the Supreme Court Act 1935 (SA). It is worth remembering that it sometimes pays to have the arbitration occur in this way even if there is an arbitration clause which can be relied on, already in position. With an arbitration under s66 there is a full appeal on fact as well as law, and you can add parties who are necessary and proper parties to the action, who are not parties to the contract of arbitration. I am surprised that this section is so little used in practice. It should also be noted that the court has an inherent power to send matters to arbitration and the inherent power is in some ways wider than the power in s66. CONSENSUAL ARBITRATIONS With those observations on arbitrations pursuant to order of Court, I pass now to deal with consensual arbitrations, because in the case of arbitrations pursuant to Court order, the modifications in procedure and practice (if any) will be contained in the Court's order sending the matter to arbitration.

5 (1993) 15 ADEL LR ) I should like to point out in limine that it is unwise for a judge or former judge to agree to be one of several arbitrators. In that case there is a likelihood of an umpire being appointed, in which case it may be the duty of the primary arbitrators to act as advocates and agents for the party appointing them, and I do not think a judge or former judge should be in that position. In cases coming before a judge in Court, there has already been a directions hearing, and most interlocutory matters are already dealt with, as well as directions given as to the course of trial. In the case of a judge or former judge acting as arbitrator, that process has to be gone through before embarking on the hearing. In addition if the sort of modifications that are necessary to embrace mediation or conciliation are not already there in the agreement to arbitrate, and that is the usual position, the judge must get the parties to agree to the modifications at the outset, before it becomes apparent later that they may be opposed on purely tactical grounds unrelated to the best way of solving the matter. As an abitrator, my practice is to circulate a list of questions to both sides before the preliminary hearing and get all these matters settled at the outset. Naturally the list varies from arbitration to arbitration but I think I have listed most of the "core" questions below. Powers of the Arbitrator 1. Is there an appointment in writing sufficient to satisfy the requirements of the Act? You will be surprised to find how often there is not. In addition it is necessary to watch that the arbitration agreement does not become an oral one by oral amendments. Even an oral consent to enlargement of time has this result. 2. Can I conduct the proceedings as I see fit?

6 30 ZELLING - JUDGES AS ARBITRATORS Even where there is a presumption in the Act in favour of an affirmative answer,g it is wise to ask the question to eliminate any possibility of misunderstanding. An arbitrator is trying to get and build on the confidence of the parties and that will vanish very quickly with unfortunate misunderstandings, even if the arbitrator has reason to rely on a specific provision in their favour in the Act. 3. Is it agreed that both sides be represented by counsel and solicitors?l0 4. Am I entitled to act as amiable compo~iteur?~~ If so, am I to be able to confer with parties and/or counsel separately if I think fit? The second question is strictly not necessary if there is an affirmative answer to the first question but as most practitioners have only the vaguest idea of what an amiable compositeur can do, it is wise to ask. 5. What remedies can I give? Section 24 speaks of specific performance. But what is the position, for example, if the contract is one for goods and services in interstate trade? Can I give any or all of the remedies in the Trade Practices Act 1974 (Cth)?12 6. Do I have the power to order compulsory conferences?13 7. Can I award interest at rates other than those prescribed for the time being by rules of Court'?14 8. Can I rewrite or alter the contract terms making proper allowances? This is common in the East but not here. 9 Commercial Arbitration Act 1986 (SA) s Section Section See also IBM Australia Ltd v National Distribution Services Ply Ltd (1991) 22 NSWLR Commercial Arbitration Act 1986 (SA) s27. Sections 31 and 32.

7 '! 9. What is the position if a party dies before an award is made or before it is carried into effect?ls The Hearing This is an often overlooked question where the identity of the person doing services by way of correction or rectification is of importance. 1. Is it all to be held in Adelaide? If so, where, and what are the services available at the designated venue? 2. Is there to be a view? If so, can I use the view as evidence? 3. Is the evidence to be recorded? If so, what arrangements are in place for this? 4. Am I to be able to call an expert of my own motion? Can I consult an expert myself on any point? Experts are useful people in identifying solutions, but of course the arbitrator must still make the decision, not the expert. I usually ask general questions as to hearing times and costs and of course the arbitrator's fee must be settled at this stage if it has not already been agreed. The Agreement 1. Am I to decide questions of the validity of the agreement and where necessary its proper law? 2. Is there to be argument on the construction of the agreement? 3. Is there any agreed date at which I am to value losses? Interlocutory Matters I need not set these out in detail. They are the usual matters covered by a direction summons. 15 Section 52.

8 32 ZELLING - JUDGES AS ARBITRATORS However, there are two things I always deal with: 1. The equivalent of a Scott Schedule is to be drawn up by the parties, showing what is agreed on each item included in the arbitration, what is disputed, and what is the area and basis of the dispute. 2. Can the experts sit in throughout the arbitration? I prefer it so, but counsel may not. Obviously this list is not complete and will vary from matter to matter and probably from judge to judge. However, any judge who is going to mediate or conciliate, or at the very least cut down the time and cost involved, must give careful thought to all such matters before embarking on the taking of evidence. I have not dealt in the article with the modus operandi of mediation. That varies with the type of dispute, and often with the individual system of mediation practised by the arbitrator. As you may have gathered by now, you should learn each time how to do a more effective arbitration next time, and judges have to apply their minds to this learning process in a manner quite different to that involved in sitting in court as an umpire, listening to what counsel choose to bring forward, and giving a reasoned judgment at the end. For the reasons I have tried to express in this article, the more expert judges and counsel become in handling arbitrations, the better it will be for dispute resolution in this country, and certainly for Australia's overseas trade with our near neighbours in Asia.